Is Now a Good Time to Purchase or Sell a Home?
What a question! This isn't unique to the current market either. No matter the market, someone will be wondering if it is the right market for their action. If it's a buyer's market then all seller's are wondering if now is the time to sell. If it's a seller's market then all buyers are wondering if now is the time to buy. That's where Utah is currently at. A strong seller's market that has got many of my buyers and move up clients wondering if now is the right time to even try.
That is a completely personal decision that you need to judge according to your circumstances and decide what level of risk you are willing to take. But to be able to properly evaluate your position, you'll need to have correct knowledge of the current market and have a concrete understanding on how a home is an asset and how it appreciates.
First let's break down how a home is an asset and that it appreciates in value. First off when you purchase a home your money doesn't just disappear like it does when you buy a taco. (you're pretty much just eating your money). You money is stored in the home. So when you sell the home, you get that money back out. With knowing that, you've neither made or lost money on your home if you never sell it. (This is based on if you purchase the home with cash). So if the market never moves and you purchase a home with cash, you should be able to sell it for the same amount of money and you'll have not lost any money or gained any. (This is not realistic, first off you'll have put money into maintenance of the home and the market is hardly ever stagnant) So it is an asset and holds value.
Next is understanding that it appreciates in value. There are 3 main ways your equity (or money in the home) increases.
First is the natural appreciation of the market. Real Estate is a limited resource and for the most part appreciates in value. On average it is about 3% but in Utah for the past 7 years it has been quite a bit more. Just in 2021 it is over a 20
% increase. There are cases where homes depreciate or appreciate at a very slow rate, but it usually appreciates (goes up in value).
Second is Forced Appreciation. This is where you make improvements to the property that bring in a higher resale value. This is like flipping a house, building a house, or just upgrading the home to a more modern status to live in.
Third is paying down your mortgage. So when you pay your mortgage payment it is broken down into sections Part of it pays your principal, part pays your intereset, part pays in home insurance, and part pays property taxes. (sometime you have mortgage insurance, etc.) The part you put toward principal pays down the amount you owe on the home and is the money that is now tied into the home with no loan to pay off behind it. That is your equity.
Now you have a start on understanding of how a home is an asset and adds retains value and also typically appreciates. Now you need to have a knowledge of the current market. You'll hear words thrown around about a seller's market and buyer's market. A seller's market is characterized by how easy it is to sell and having a large demand of buyers. A seller has an easier job selling at top dollar and not making repairs. A buyer's market is where seller's are struggling to sell their home, so a buyer can negotiate in more things that are beneficial to them since they aren't competing as heavily. A healthy market is a good balance between. Where a seller can sell their home within a decent time frame and for what they are hoping for, and a buyer isn't have intense competition to secure the property.
Today's current market here in Utah is a Strong seller's market. It has slowed down from the previous months but is still leaning in the seller's favor. Homes in Brigham are typically sitting on the market for 4-7 days and receiving about 2-5 offers. So still some competition but nothing like what it was. We're actually seeing some listings dropping price, which wasn't heard of a little bit ago.
Alright! So you now have an idea on where the current market is and have a solid knowledge of how a home is an appreciating asset. Is now a good time to buy and sell a home?
Let's talk about the pros and cons of buying and selling in each market type.
Seller's Market (this current market)
Sell your home for top dollar
Easier to line up contracts
Very little repairs required
More secure contracts
Pay top dollar to purchase a home
Hard to negotiate in any warranties or repairs
Harder to purchase and sell at the same time
Non refundable earnest money
Easy to purchase a home
You can negotiate in repairs
Protect your earnest money
Hard to sell your home
Lot of preparation to get it to sell
Home sits on the market long periods of time
So the obvious saying "Seller's market is nice for seller's and a buyer's market is nice for buyers" So if you are planning on selling your home and moving up into a nice home. There really isn't any difference between the markets because you are hit on either one side or the other. The difference is you are going to have a lot longer time frame in a buyer's market than a seller's.... that is obviously a catch 22. So really the only difference is your time frame.
Now if you are planning on just selling. Now is the time. You'll never know how the market will be in the next year. If you are holding out for it to just go higher, it may or may not... you have to make the decision fully based on the current market.
If you are planning on buying, should you wait? No probably not. For the exact same reason a seller shouldn't. You do not know what the future market holds. Will there be a market collapse? Maybe... (remember that you only lose money if you sell during that downturn) Here is all I can say about it. Last year I had a couple clients who were looking for a home and decided to wait for the bubble to pop and buy when it shifts toward a buyer's market. If they would have purchased a home last year (let's say the price point is $250,000) and the market increased by 20% (it's increased more than that in 2021) then they would be able to sell their home for $300,000 in today's market and would have about $50,000 in equity. There is a price to pay for waiting for the bubble to pop. (That's not taking into effect that the most the market has depreciated in Utah for 2008 was roughly 12%)
So should you wait? I don't know! Like I said, that is up to you and your comfort level. Hopefully this article at least shed some light onto you as you work through this decision. Good luck! If you have any further questions don't hesitate to contact me.